‘Dark pools are here to stay’

Business Times

NEW YORK: While money managers don’t always like what happens in the US$23 trillion (RM73.9 trillion) United States stock market, they’re too fond of dark pools to let them go extinct, according to a professor whose research was presented to the Senate.

“Dark pools have existed forever,” said Robert Battalio of the University of Notre Dame. “You can shut down these dark pools and just new forms will arise somewhere else.”

Brokers and mutual funds disconnected last week from one of the private trading platforms, owned by Barclays Plc, after New York’s attorney-general said the London-based bank lied to customers and masked high-frequency traders in its LX dark pool.

“There are bad dentists out there, there are bad store clerks, so you’ve got to separate the structure from the bad apple,” Battalio said. “Order flow will always have multiple venues to execute on — upstairs markets — because one size doesn’t fit all.”

The best way for investors to avoid mistreatment is to analyse the performance of their brokers to make sure they’re getting a fair shake, Battalio said.

“That’s what we would argue needs to happen,” he said. “The buy-side’s become empowered, and they’re doing a much more vigilant job of watching.” Bloomberg